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Dollar pumps up Gorgon cost by $20b

The Gorgon liquefied natural gas project faces a cost blowout as big as $20 billion linked to the strong dollar, and high labour and manufacturing expenses, according to media reports.

US-based oil giant Chevron is expected to reveal the $20 billion increase in the Western Australia project, taking its final cost to near $60 billion in total, by the end of the year, according to the Australian Financial Review.

Chevron has said the cost overruns have been driven by a strengthening Australian dollar since 2009 when it began construction on the Barrow Island LNG plant in WA.

Other factors adding to the higher price include "weather, logistics and labour productivity". Chevron's general manager for Australian operations, Brian Smith, refused to speculate on the the final price increase.

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"The cost is still the same number at this point in time," Mr Smith told the AFR. "It may well be in the future or it might be some other number but right now that is the cost for Gorgon."

Spiralling costs of projects have become a feature of the Australian resources projects in the past year, even as the outlook for commodities prices becomes less certain. BHP Billiton yesterday revealed it was considering shipping a portion of its US-produced shale gas to Asia, which would undercut more expensive Australian gas.

Gas prices have plummeted amid the boom in shale gas production in the US.

In a more positive sign, BHP Billiton also said yesterday it had secured a four-year extension on the terms to expand its Olympic Dam mining project in South Australia. In August, the company said it would delay the venture because of wavering commodities prices and high costs.